Given the chance to express consternation about the 2020 election, US credit investors took the opportunity – if only in the form of a checked box on a survey.
The latest edition of BofA’s credit poll gave respondents the option to select the election as a top concern for the first time, and 79% of folks did.
It easily topped the list.
As you can see, the next biggest worries are all China related, with “Trade war”, “China” and “Geopolitical risk” mentioned by 59%, 50% and 43%, respectively”, the bank’s Hans Mikkelsen notes, in the color that accompanies the survey results.
Not surprisingly, those concerns (i.e., worries about all things China) receded from September, the last time the survey was conducted. Optimism around a trade deal has been the defining feature of markets over the past two months, so that’s going to be reflected in the responses of anyone you care to ask.
“Now 19% of investors expect a deal in the near term, up from 6% in September, and 65% expect a trade deal eventually”, BofA’s Mikkelsen says.
That those concerns have abated materially is yet another reason to keep your fingers crossed that Donald Trump doesn’t decide, at the last minute, to refuse tariff relief, thereby deep-sixing the agreement that is now widely seen as baked into market pricing across assets.
On Saturday, Trump offered some less than comforting soundbites in that regard.
In addition to trade worries fading, US credit investors are now feeling better about the US economy after a string of decent data including a reasonably solid advance read on Q3 GDP, a somewhat convincing bounce in ISM non-manufacturing and, of course, a good October jobs report.
Obviously, that has implications for spread views.
“US recession fears are fading after the summer scare, as the survey implied 12-month recession probability dropped to 21% from 25% in September”, BofA writes, adding that there’s been “a notable bullish shift among credit investors – despite tighter spreads – with a net 44% and 15% expecting tighter spreads over the next three months for IG and HY investors”.
Relatedly, IG investors now see the fundamental outlook improving, with just 14% expecting lower quality trends, versus 25% in September. For high yield it’s a different story, though. 49% expressed concern about late-cycle dynamics, up sharply from 14% previously.
But hey, look at the bright side. Even if things were to go off the rails in Q4 again like they did last year, everyone knows who to call, right?…